Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Walmart Lives but is it Making Money?

Walmart lives is the message the latest financial numbers scream at us. For instance, Walmart (NYSE: WMT) reports a gross profit of $33.886 billion for 1st Quarter 2019.

In fact, that gross profit exceeds the $27.597 billion gross profit Amazon (NASDAQ: AMZN) records for 4th Quarter 2018. Moreover, Walmart reports revenues of $138.793 billion for 1st Quarter 2019, in contrast to Amazon’s $72.383 billion in revenues for 4th Quarter 2018.

Thus, Walmart lives and is making more money than Amazon. Therefore, Walmart can compete and thrive in the age of Amazon.

Can Walmart Keep up with Amazon?

Walmart reports an operating income of $6.067 billion and a net income of $3.687 billion for 1st Quarter 2019. Comparatively, Amazon reports an operating income of $3.786 billion a net income of $3.027 billion for 4th Quarter 2018.

These numbers indicate Walmart can go head to head with Amazon and win. However, there are three comparisons between Walmart and the Everything Store that should worry WMT stockholders.

First Amazon generates more cash than Walmart. Specifically, Walmart records an operating cash flow of $10.445 billion and a free cash flow of $7.326 billion for 1st Quarter 2019. Comparatively, Amazon reports an operating cash flow $16.477 billion and a free cash flow of $13.357 billion for 4th Quarter 2018.

Second, Amazon has a growing hoard of cash, Walmart cannot match. For instance, Amazon had $41.250 billion in cash and short-term investments on December 31, 2018. In comparison Walmart had $7.772 billion in cash and equivalents on January 31, 2019.

Consequently, Amazon has far more cash to play with than Walmart. I think the cash gives Amazon a critical edge in the race to deploy the latest retail technology. For example, Amazon can open more fulfillment centers than Walmart can.

Can Walmart Compete with Amazon?

Third, Amazon’s growth rate greatly exceeds Walmart’s. Signficantly, Stockrow gives Walmart a revenue growth rate of 1.85% for 1st Quarter 2019. Meanwhile, Amazon had a revenue growth rate of 19.73% for 4th Quarter 2018.

This indicates Amazon’s momentum is nearly 20 times greater than Walmart’s. Hence, Walmart will need to keep taking drastic steps to keep with Walmart.

For instance, Walmart is quietly closing 11 stores in the United States, Business Insider reports. However, Walmart is closing just one Supercenter in Lafayette, Louisiana and only 10 Neighborhood Markets.

These closings will have little effect on Walmart’s operations because the discounter operates 4,700 stores in the United States alone. Thus, intense competition with Amazon is not affecting Walmart’s vast footprint yet.

Is Walmart a Good Dividend Stock?

Walmart (NYSE: WMT) is still a good dividend stock that paid 53₵ on April 1, 2019 and will pay 53₵ again on June 3, 2019. That dividend grew by one cent this year, rising from 52₵ on January 2, 2019.

In detail, Walmart shareholders received a dividend yield of 2.17%, an annualized payout of $2.12, and a 44.1% on March 29, 2019. Impressively, Walmart has racked up 44 years of dividend growth, reports.

In contrast, Amazon, famously refuses to pay a dividend. Thus Walmart I think Walmart was still a value investment at $97.19 on 3 April 2019. Consequently, I feel Mr. Market grossly overpriced Amazon at $1,820.75 on 3 April 2019.

I like Walmart because it is still the number one retailer in America and America’s number three online retailer. However, Walmart’s online efforts are still tiny when compared to the Everything Store.

For instance, Walmart controlled just 4% of US online retail spending worth $20.91 billion in 2018, eMarketer estimates. However, Amazon controlled 48% of American e-commerce spending in 2018.

Thus, Walmart is the number three online retailer in the United States behind Amazon and eBay (NASDAQ: EBAY). However, Walmart’s e-commerce sales will need to grow by over 50% to compete with Amazon’s. I don’t see that happening soon.

My prediction is that Walmart will survive and make money but it will take a long time to compete directly with Amazon. Walmart lives and remains a great value and dividend stock. However, you should not expect any significant growth from this discount giant soon.

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